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Baroness Lloyd of Effra
That this House do not insist on its Amendments 120N and 120P to 120S, to which the Commons have disagreed for their Reason 120T.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Innovation and Technology (Baroness Lloyd of Effra) (Lab)
My Lords, in moving this Motion, I will also speak to Motion A1. Throughout the passage of this Bill, which arrived in your Lordships’ House nine months ago yesterday, we have scrutinised, deliberated and debated all areas. Once again, I thank noble Lords for fulfilling their scrutiny role and, in the course of doing so, providing their invaluable insight.
However, we are now in round 4 of ping-pong on a Bill that the Government have a clear electoral mandate to deliver. We cannot be accused of attempting to push the Bill through without listening to the concerns raised by noble Lords. We are immensely grateful for the more than 60 occasions on which noble Lords have engaged with us, offering rigorous scrutiny and thoughtful challenge. It is because of this valuable feedback that the Government have been able to act and make changes where appropriate, including through technical amendments in Committee and on Report and the publication of an implementation road map outlining what the Government will consult on, when, and at what point new rights are expected to go live.
The Government are pleased to have found commonality in the three previous rounds of ping-pong on 11 of the 12 issues the House asked the Government to look at again. The contributions of noble Lords from across the House have helped bring forward solutions on a range of specific issues, from heritage railways to paid time off for special constables. On a number of other issues, such as the right to be accompanied, the Government have made non-legislative commitments which noble Lords have recognised as important progress. Most recently, during ping-pong, the Government brought forward amendments to the Bill on zero-hours contracts, seasonal work, trade union ballot thresholds and trade union political funds, which will help to ensure that stakeholders’ views and insights are represented in the final policy outcomes as we shift into the implementation phase for this Bill.
On the final issue of unfair dismissal, in the face of successive Lords votes against day-one rights to protection from unfair dismissal, itself a manifesto commitment, the Government took the extraordinary step of convening a series of constructive conversations between business representative organisations and trade unions, which reached a workable agreement on the unfair dismissal provisions. Yesterday, those representatives—from the British Chambers of Commerce, the Chartered Institute of Personnel and Development, the Recruitment and Employment Confederation, Small Business Britain, the Federation of Small Businesses, and the Confederation of British Industry—wrote to the Secretary of State for Business and Trade, stating that the outcome of the dialogue
“represented a significant step forward which will have a positive impact on growth and opportunities”.
Lord Sharpe of Epsom
At end insert “, and do propose Amendment 120U as an amendment to Commons Amendment 120G, in lieu of Amendment 120N, and Amendments 120V to 120Y as amendments to Commons Amendment 120H, in lieu of Amendments 120P to 120S—
“(3) In section 124 (limit of compensatory award etc.), for subsection (1ZA) substitute—
“(1ZA) The amount specified in this subsection is £118,223.
(1ZB) Within three months of the day on which the Employment Rights Act 2025 is passed, the Secretary of State must conduct an impact assessment of the change to the limit specified in subsection (1ZA) made by that Act in order to assess whether the limit specified in subsection (1ZA) is the appropriate amount.
(1ZC) An impact assessment under subsection (1ZB) must consider the effect of the change to that limit on—
(a) the ability of claimants to obtain fair compensation,
(b) the operation and capacity of employment tribunals,
(c) the willingness of parties to settle claims without recourse to a tribunal, and
(d) public sector employers and public expenditure.
(1ZD) An impact assessment under subsection (1ZB) must include a consultation with—
(a) employers’ organisations,
(b) trade unions,
(c) organisations representing employment law practitioners, and
(d) such other persons as the Secretary of State considers appropriate.””
Lord Sharpe of Epsom (Con)
My Lords, as the Minister has just said, yesterday a letter was sent to Members of the House by six major business organisations, setting out precisely what many of us said in the Chamber last week. That letter makes one thing abundantly clear: the Government did misrepresent when they claimed that the abolition of both compensation caps was agreed between businesses and the trade unions.
The agreement—I choose that word carefully—was to remove the 52-week salary cap while retaining and increasing the overall monetary cap, which is currently just over £118,000. That was the compromise that was understood by the business community, but the Government have now chosen not only to abandon that agreement but to misrepresent it to the House. To prove that point, I will quote from the same letter from the six business organisations, which states:
“Unfortunately, we have not been able to reach a compromise that satisfies both the unions’ request for removal of the cash cap and our position of retaining it while raising the overall limit”.
This is made all the more serious by the Government compounding the error by behaving unconstitutionally. The removal of the compensation cap was introduced at ping-pong, having been debated at no previous stage of this Bill, neither in your Lordships’ House nor in another place. This House exists to scrutinise legislation, not to rubber-stamp late-stage surprises, still less ones accompanied by misleading assurances.
Let me be clear about the Conservative Motion that is tabled in my name. It reflects precisely the agreement that business groups believed they had reached with the Government: the removal of the 52-week cap, coupled with the retention and review of the overall monetary limit. There is no credible reason that the Minister can give for the Government to not accept it.
The Motion also provides for a formal review and proper consultation. I remind the House that, when the cap was increased under the Labour Government in 1999, that change followed consultation. When the coalition Government introduced a 52-week gross salary cap in 2015, the same approach was taken. There is no reason whatever why the Government should not proceed in the same careful, evidence-based manner again.
It is the Government’s choice, and theirs alone, to delay this legislation by introducing an entirely new issue at this final stage and then attempting to justify it on the basis of an agreement that did not exist. It is also wholly wrong for the TUC, the Minister in another place and others to attack hereditary Peers for doing precisely what they, like all noble Lords, are here to do: scrutinise legislation. It is also worth noting that the criticism of hereditary Peers was unfairly universal. No thanks were offered to at least one Liberal Democrat hereditary Peer who backed the Government.
If the 65 Labour Peers who were absent last week had attended, the Government would have likely prevailed. However, I rather suspect that some of them might have developed cold feet once they realised that they were being asked to support multimillion-pound payouts to water bosses and failed senior executives in financial institutions. Perhaps absence in this case was a mercy.
Over the weekend, the latest employment tribunal statistics were published. They are stark. There are now over 515,000 open cases, and that figure will rise, not fall, as a result of this decision. Why? Because well-resourced senior executives advised by the very best lawyers will now enter the system in greater numbers, clogging up tribunals, prolonging hearings and consuming judicial time. The inevitable consequence is that ordinary working people, many of whom have a legitimate and modest claim, will wait longer for justice or be denied it altogether.
This debate does not take place in a vacuum. Unemployment has risen again this month, as it has every month under this Government. Nearly 2 million people are now unemployed, this Christmas there will be 192,000 fewer in private sector payrolled employment than last Christmas, and young people are bearing the brunt. At a time when their futures are already being crushed by rising costs, weaker growth and dwindling opportunities, the Government choose to inject yet more uncertainty into the labour market. What on earth do Ministers think they are doing? Instead of encouraging job creation, they are creating incentives for litigation, delay and risk—precisely the opposite of what a fragile jobs market requires.
I say to the Liberal Democrats that it is a curious position to demand that water company bosses be dismissed while simultaneously supporting a policy that could hand such individuals eye-watering compensation. Something does not add up. What we are seeing instead is the Liberal Democrats choosing to form a coalition of chaos with the Government and abandoning British business, working people and the constitutional role of your Lordships’ House. In fact, according to data published by the Liberal Democrats themselves just last year, executives of water companies in England collected some £70 million in remuneration between 2021 and 2023, including nearly £41 million in bonuses. One is therefore entitled to ask why, in the space of a single week, their position appears to have shifted so dramatically. Perhaps the noble Lord, Lord Fox, can explain this sudden change of heart.
The Government have claimed that removing the compensation cap will not affect the level of awards. The Ministry of Justice’s own data shows that the median award of just under £7,000 is derived from just 650 tribunal awards. Yet each year there are many thousands of potential unfair dismissal claims, the overwhelming majority of which never reach the point of an award because they are settled long before they reach that stage. The reason those cases settle is the existence of a statutory maximum. The cap provides a known endpoint and encourages realism from both parties. Remove that ceiling and settlement becomes vastly more difficult. Claims run longer, positions harden and costs escalate—and tribunals, which are already overwhelmed, are left to pick up the pieces.
Even President Macron recognised that the absence of such a cap was harming French competitiveness and introduced one in 2017. It is a sorry state of affairs when France has something to teach a British Government about competitiveness. The only country in Europe without a statutory cap on unfair dismissal compensation is Luxembourg, which has a youth unemployment rate of 20%.
I have a few questions for the Minister. What conversations have Ministers had with the financial services sector, where concern about this change is profound? Will the promised impact assessment be serious, comprehensive and honest, and will it include the risk of opportunistic and speculative claims, the increased burden on the public sector and the likely cost to the taxpayer? The original Employment Rights Bill impact assessment was, frankly, inadequate—a fact recognised by the Regulatory Policy Committee, which issued a red rating. Will the Government now guarantee that the impact assessment on abolishing the compensation cap will not meet the same fate and that it will be detailed, rigorous and transparent? If it becomes clear, as many of us fear, that the removal of the cap leads to tribunal congestion, rising costs and injustice for ordinary workers, will the Government commit to reintroducing a cap, as President Macron did? Finally, will Ministers undertake to consult properly with employment law practitioners, the majority of whom oppose this decision, alongside businesses both large and small?
In conclusion, because of the Conservative Party a six-month qualifying period has been secured. However, that alone does not remedy the fundamental flaws of the Bill. The £5 billion cost remains. The costs of a raft of 1970s-style trade union reforms have not been properly identified, let alone accounted for, by the Government, and I repeat that all this is against a backdrop of rising unemployment. Let me be completely clear: the next Conservative Government will repeal every job-destroying, anti-business measure in this unemployment Bill. I beg to move.
Lord Pannick (CB)
My Lords, the noble Lord, Lord Sharpe, mentioned part of the letter written to the Business Secretary yesterday by six business groups including the CBI, the Federation of Small Businesses and the British Chambers of Commerce. What he did not mention is that the letter from those groups also said that
“now is the time for Parliament to pass the Bill”,
despite their concerns. That seems to be a much wiser approach than that adopted by the Conservative Front Bench—not least because Motion A1 raises no great issue of principle. It raises a request for an impact assessment.
Lord Vaux of Harrowden (CB)
My Lords, at Second Reading in March—nine months ago, although it feels longer ago—I said that
“the Bill will damage growth and, most importantly, the employment opportunities of the most vulnerable people”.—[Official Report, 27/3/25; col. 1907.]
After nine months of debate and scrutiny, it is less damaging, but I still believe it is not a good Bill. It still piles cost and regulation on businesses and on the public sector at a time when we should be doing exactly the opposite.
But this House has done its job well and responsibly. We have pointed out the unintended consequences that the Bill may have, the potential damage to the employment prospects of the young and others, and the disproportionate impact on the backbone of our economy—smaller businesses. We have given the other place several opportunities to think again and, to be fair, it has done so in a number of areas. In particular, the Government have compromised on what I believe was the most damaging aspect, day-one dismissal rights.
We have also quite rightly registered our constitutional disapproval of the introduction of a material change at the very last minute—the abolition of the cap on unfair dismissal, which is the subject of Motion A. The Minister stated last week that the amendments were “context- and Bill-specific”. I take this and her reference to
“discussions with the Leader of the House on how she and other Members would like to conduct business more regularly”—[Official Report, 10/12/25; col. 276.]
as confirmation that the Government accept that this should never be seen as a precedent. This House would be right to reject it if it were ever used as a precedent in the future.
I have a lot of sympathy with the Motion proposed by the noble Lord, Lord Sharpe, but I am afraid I will not support it at this stage. We are in danger of over- egging the impact of the removal of the cap. I do not support it, but the water bosses, for example, will be remunerated if they are fired for contractual reasons, which is unlimited anyway. It is not going to be under the unfair dismissal rules. I am not convinced that it makes an enormous difference, but the noble Lord is quite right that we do not have an impact assessment yet.
Despite our giving it the opportunity to think again on many aspects, the other place has disagreed with our changes and decided that it wants to go ahead. That now also includes the cap on unfair dismissal claims. The time has come for us in this House to respect the will of the elected Chamber and let the Bill pass, regardless of any remaining concerns that I and many others still have. I will vote against the amendment for that reason.
I end with a final plea to the Minister. She will be aware of the latest employment figures and the worsening trend. She will also be aware that what the ONS described as this “subdued labour market” is disproportionately affecting young people. We should all be very concerned about that. The Resolution Foundation is also clear on this:
“As is typical in economic downturns, young people have been hit hardest. With unemployment expected to stay elevated, Government should be cautious about any further increases in labour costs”.
Much of the implementation of this Bill will be by regulation, which will follow over the coming years. I urge the Minister to ensure that the concerns that have been raised in this House and elsewhere are kept front and centre, and that the unintended consequences that may arise, especially for young people, are thought through very carefully while the regulations are being created.
It was encouraging that the Government listened to business organisations in the later stages of the Bill, especially around the unfair dismissal question. I urge the Minister to ensure that the Government continue to listen constructively to the concerns of those who will create the growth and jobs that will drive the economy, and especially that they make a much greater effort to hear the concerns of smaller businesses which are feeling rather ignored and concerned at the moment. That said, it is time to let the Bill pass.
Lord Fox (LD)
My Lords, this time last week I said that much had happened in the preceding interval. Today, the opposite is true. We are now down to one issue, but the arguments on that issue remain as they were last week. For that reason, unlike last week, this speech will be short.
There remain concerns about the removal of the cap on compensation, as we have heard. As he did last week, the noble Lord, Lord Sharpe, has taken those concerns and amplified them, to the seeming exclusion of the wider strategic position of what we are discussing. I understand the motives, and those motives became ever clearer just now. If the noble Lord would like to have a face-off on the water industry, I would be very happy to discuss with him the hundreds of thousands of tonnes of sewage that went into the rivers under the Conservative Government and the compensation terms that he very helpfully enumerated, which happened on his watch. However, this is not the arena for that argument, and I will pass without comment. My critique of the noble Lord’s amendment to the Motion is unchanged. We believe there are better ways of dealing with the cap than derailing the package that got the key concession with which we are all very pleased.
As set out last week, reiterated in the Minister’s letter and by the Minister just now, the Government will publish an enactment impact assessment for the Bill. They will do so prior to commencement regulations which would put in place the dismissal package. That was what we on these Benches were asking for and we were pleased to receive that assurance. Further, the impact assessment will be publicly available, and I was pleased to hear the Minister say that we will be engaging the community of business in the process of developing that impact assessment.
Many UK business associations and organisations share the feeling that there is nothing to be gained from the opposition amendment today. They are asking the opposite. As the Minister set out, six of the major organisations have sent a letter. It is a longish letter, as the noble Lord, Lord Sharpe, demonstrated by selectively picking elements out of it. But as the noble Lord, Lord Pannick, pointed out, the conclusion is clear and actually unambiguous, in saying,
“we believe that the best way forward is to keep working with the government and trade unions to find balanced solutions through secondary legislation. To avoid losing the 6 months qualifying period, we therefore believe that now is the time for Parliament to pass the Bill”.
I said that last week, and it is truer this week.
I also pointed out last week that, as the business organisations said, the key to enacting the Bill will be through secondary legislation. If His Majesty’s loyal Opposition care about how the Bill is brought into life, it is on those statutory instruments that they should focus their attention. Their critical actions must extend to include the possibility of fatal Motions to vote down secondary legislation and keep the Government focused on the needs of British business. That is the real arena that we should be working in.
If the amendment from the noble Lord, Lord Sharpe, is put to a vote and he seeks to extend ping-pong to yet another round, that will clearly be against the advice of the business groups which have been cited. I urge your Lordships to heed the advice of those organisations, and the advice of the noble Lords that we have heard opposite, and pass the Bill now.
Baroness Lloyd of Effra (Lab)
My Lords, I again thank your Lordships’ House for its attentive scrutiny throughout the passage of the Bill. There can be no doubt, as the noble Lord, Lord Vaux, mentioned, that this House has discharged its duties as a revising Chamber. Your Lordships’ House asked the Government to look again, and we have worked collaboratively with noble Lords to reach this agreement. I thank the noble Lords, Lord Fox, Lord Pannick and Lord Vaux, for their speeches in favour of the compromise proposed by the Government.
I turn to a number of the issues raised, in particular by the noble Lord, Lord Sharpe. I remind noble Lords that negotiations are successful only where there is compromise, as was so eloquently put in the previous debate by my noble friend Lord Barber of Ainsdale, the former chair of ACAS. The Government and worker representatives moved considerably during negotiations to agree to retaining a six-month qualifying period. Without similar compromise from business representatives on the removal, this deal would have been one-sided and undeliverable.
On the question of the impact of the cap, I do not think I can do better than the noble Lord, Lord Pannick, who said last week that
“the concerns that have been expressed about the impact of the removal of the cap are perhaps … exaggerated”.—[Official Report, 10/12/25; col. 276.]
Just now, he mentioned that he does not believe it will lead to the chaos that the noble Lord outlined earlier. It is not our view, but, in any case, as I mentioned, we will publish the enactment impact assessment as soon as the Bill achieves Royal Assent. It will be public and transparent, and will include an assessment of the impact of removing the compensation cap.
I remind noble Lords of our commitment to convene meetings with shareholders so that those from the City, law practitioners and others can feed into that. Those findings will be taken into account by the dispute resolution task force that we are setting up—it will have all that information to hand. We are obviously very keen to improve the functioning of the dispute resolution system. We inherited something that was not in a good state. We are providing ACAS with over £65 million in resource funding, which is a significant increase. We are working actively to make this a system that works extremely well.
I hope that this afternoon will mark the end of the Bill’s journey through Parliament. I reiterate the Government’s commitment, mentioned by other noble Lords who spoke today, to continue talking to and genuinely engaging with interested parties in the way we have recently about the full range of issues discussed today. The Bill will deliver a generational shift in employment rights. It will do so by working with businesses and trade unions in a collaborative manner. These changes to the qualifying period and the compensation cap are proportional and practical. For those who are concerned about business impact, the joint letter should provide noble Lords with reassurances that businesses support this workable agreement. As they have stated,
“now is the time for Parliament to pass the Bill”.
I hope noble Lords will recognise the progress made over the past nine months, oppose the amendment tabled by the Opposition Front Bench, and, in doing so, support the package to deliver certainty for businesses and fair rights for workers. It is indeed time for Parliament to pass the Bill. I commend it to the House.
Lord Sentamu (CB)
I have a right to ask questions. What is most concerning, at least for me, is not the limit or the reducing of the compensation package—that is not the question—but the use of ping-pong to produce a new clause that has never been debated in your Lordships’ House or even in the Commons. That is a constitutional question that bothers most of us.
I have not heard a word saying, for example, that we reached an agreement, we felt we had to bring it in and we will not do this kind of thing again. As more Bills come, how do we know whether ping-pong will be used in a way that, in my book, it should not be? No one should introduce new clauses that have not been canvassed in both Houses of Parliament. Because that has not happened, some of us are arguing about not the actual amendment but whether we will know that rules that have been established in your Lordships’ House for years will be followed. I have been in the House since 2005, and ping-pong has never been used to introduce a new clause that has not been debated in both Houses. Will we know?
Baroness Lloyd of Effra (Lab)
I thank the noble and right reverend Lord for his question. As I mentioned last week, the context here is Bill specific and the changes that have been proposed and have been put in terms of this tripartite agreement were in response to issues that had been raised in your Lordships’ House. We went away and convened a particular mode of operating, and we have brought it back as a Bill-specific package. As I also mentioned last week, there are many discussions in the House about how we want to take business forward. The Leader of the House has set that out very clearly. That is the way we intend to proceed more generally.
Lord Sharpe of Epsom (Con)
My Lords, I am grateful to all noble Lords who have spoken in this very brief debate. The noble Lord, Lord Pannick, is of course right—I did not quote that bit of the letter because the Minister did. The House generally does not like needless repetition, so I am following the rules.
I am very grateful to the Minister for those assurances, and I am somewhat reassured. I am grateful—correct me if I have any of this wrong—that the impact assessment will be published before commencement and will be public and transparent and include a dispute resolution mechanism, that the tripartite agreement will endure going forward in further discussions around the Bill, and that all stakeholders will be consulted widely. That is, in effect, what we were asking for. The simple fact of the matter, though, is that we on these Benches will continue to hold the Government to account on behalf of the wealth creators, the businesses, the employers and their workers in this country.
I have heard what has been said and will emphasise a point made by the noble Lord, Lord Vaux, which I should have made in my speech: we are particularly concerned about the impact of the entire Bill on small businesses. We will return to that theme unless their interests are very carefully protected going forward.
As to the comments by the noble Lord, Lord Fox, regarding the strategic position, I am not entirely sure what the strategic position is. But I am grateful for his comments.
I am also enormously grateful to all those on His Majesty’s Loyal Opposition’s Benches and the many on the Cross Benches who stuck to their principles. We have achieved a great deal and made a bad Bill marginally more palatable. I beg leave to withdraw Motion A1.